It's schmooze or lose in air wars

Michael Oneal, Tribune staff reporter.Tribune reporter David Greising contributed to this story

John Leahy, the longtime sales chief of Airbus SAS, was gliding through Los Angeles in a limousine, on the way to a morning sales call, when his cell phone rang with an urgent call from Manila.

Leahy flipped open his phone and said a curt hello. Then he nodded as one of his lieutenants passed along some key intelligence.

The Airbus sales team in Asia had gleaned from its web of contacts that Yang Ho Cho, the chairman of Korean Air, had scheduled a lunch that day in Los Angeles with Leahy's archrival, Alan Mulally, the chief executive of Boeing Commercial Airplanes.

Cho's organization was deep in the throes of making a multibillion-dollar decision to purchase either Boeing's new 787 Dreamliner or the Airbus A350. And Leahy wanted to seize the opportunity to outmaneuver Boeing.

"Do you know what time he's meeting Mulally?' Leahy asked.

In the $50 billion business of selling passenger jets, outflanking your rival often can spell the difference between winning or losing orders big enough to swing the balance of global trade. For two decades, nobody has done that better than Airbus' indefatigable, silver-tongued salesman.

On this particular day, however, Leahy learned that Boeing had the upper hand. When he sat down with Cho over tea in the coffee shop of the Wilshire Grand Hotel, Cho told him that his technical team was leaning toward Boeing. The problem: Airbus engineers had failed to spend as much time as the Boeing team explaining why theirs was a better airplane.

"I guess we screwed up," Leahy concluded.

What Leahy is discovering is that in the high-stakes game of selling airplanes, it may be easier to be the pursuer than the pursued. When it swept past Boeing to become the world's largest jetmaker two years ago, Airbus roused the long-slumbering giant. And now the chase is on.

On Monday, five weeks after Leahy met with Cho, Korean Air announced it had ordered 10 Boeing 787s, while taking options on 10 more, partly because Boeing agreed to buy parts for the plane from the Koreans, souces say.

Northwest Airlines is also within days of buying 787s to update its aging fleet. Boeing and Northwest won't comment, but sources say a key part of the deal may be upfront financing from Boeing.

The two orders give Boeing's new program a major leg up in a battle that it had been losing badly for the past several years.

"Objectively, they've got the high ground right now," Leahy said on Tuesday. "I wanted Korean and Northwest."

Since 1994, the 54-year-old New York native has tormented his Chicago-based archrival by leading a sales assault that resulted in one of the most remarkable market flip-flops in modern business history.

But Boeing is fighting back hard with lower costs, an impressive new airplane and an all-out strategy focused on preventing Airbus from launching its own new product to compete.

If Boeing can win enough orders from airlines like Korean and Northwest, it might be able to kill the A350, which has yet to win launch authority from the Airbus board.

"They seem to be doing everything they can to stop the A350 from being an industrial launch,' said Leahy. "My job is to make sure that doesn't happen."

Airbus, he promised, will have 100 orders for the A350 in hand by the end of the year.

Ironically, Boeing may have Leahy to thank for many of the changes that allowed it back into the game. Watching Airbus soar from 18 percent of the market to 57 percent over the past decade has shaken Boeing from its bureaucratic torpor.

After getting feedback from miffed customers last year that Leahy's sales team was much more responsive to their needs, Boeing has gone to school on its European rival. It has sped up decision-making, while dispatching senior executives and board members into the field to drum up sales. It has made winning back market share a priority and is enabling its salesmen to take more risks in pricing.

In addition, it has revamped its production lines to make them more competitive with Airbus', and it finally has rolled out a compelling new product in the 787, the first commercial airplane with a fuselage and wings built almost entirely from carbon-fiber composites.

It also has prodded the U.S. to launch a trade war intended to stop European government subsidies that could make an A350 launch easier.

"We'll be on top in terms of orders earned in 2005," vowed Scott Carson, who took over as Boeing's chief of commercial sales in a management shake-up in November.

Even Leahy is impressed.

"When they say stuff like that, and they start to getting very aggressive on pricing," he said, "all of a sudden you get to a situation where these guys could really turn it around this year."

Leahy, of course, is hardly the only reason for the Europeans' success. Most industry observers agree that Airbus has benefited mightily from billions of dollars in government subsidies. The money allowed the European consortium to develop an impressive family of high-tech airplanes in record time. Some say it is those planes, not Leahy, that have made the difference against Boeing.

But in recent months, Boeing executives also have come to realize that trade issues are not the sole source of the U.S. company's swoon.

Customers say "we've been arrogant and slow," said Boeing Chairman Lewis Platt. "We weren't aggressive, we weren't visiting customers. We kind of just blew them off."

Mulally said Boeing has been distracted in recent years by the need to revamp its production lines to make them as efficient as the ones Airbus has in Europe. It also has been busy developing the 787, which will require an entirely new business model and production system.

Now, however, the resulting efficiencies are giving the U.S company the ability to price its airplanes more aggressively, and Mulally has instructed his team to turn up the heat on Airbus.

As the company's sales executives gathered to plot strategy, a cartoon reminiscent of the children's book "Where's Waldo?" would appear on a PowerPoint slide at the front of the room. But instead of Waldo, the drawing challenged viewers to find a miniature version of Leahy, grinning his Cheshire cat grin.

"I asked where he was every week, and I expected them to know," said Carson's predecessor, Toby Bright, who lost his job after forfeiting too many deals to Airbus last year.

The problem for Boeing has been that Leahy and his team are everywhere. The Airbus chief has created a sales organization that performs more like the extension of a scrappy Silicon Valley start-up than the front end of an enterprise founded by four plodding European governments. It acts like a spy network, building relationships with airline executives and passing crucial information back to headquarters.

It's not so much that friendships sealed through expensive dinners and golf outings swing billion-dollar decisions.

The issue has more to do with customer insight. In the big-ticket business of selling airplanes, the countless hours spent schmoozing with people at all levels of an airline allow a sales organization to ferret out what's really important to the key decision-makers.

Leahy spends more than 200 days a year away from Toulouse, France, where he lives with his wife and the youngest of their three children. Over a 10-day period in March, he flew back and forth to the U.S. twice to tend to three different sales campaigns--Korean Air, Northwest and International Lease Finance Corp., a giant leasing company that is considering the 787 and the A350.

The trip to Los Angeles when he met Cho lasted only 16 hours, but it was a study in opportunism.

The night before he had zipped in from a conference in Phoenix aboard a Citation V business jet flown by his friend and biggest customer, Steven Udvar-Hazy, the chairman of ILFC. He stayed the night at Udvar-Hazy's Beverly Hills estate and then met up in the morning with Christophe Mourey, the Airbus executive responsible for catering to leasing companies, so they could prepare a pitch to sell Udvar-Hazy a new fleet of A350s.

On the way to Udvar-Hazy's office, Leahy got his call from Manila. The Korean deal turned out to be a bust, but Leahy doesn't consider it time wasted. By competing at all, Leahy forced Boeing to expend capital that it might not have for a future deal. There's no doubt, however, that Mulally's new willingness to venture into the field with his salesmen has made Leahy's job more difficult.

"Mulally has the ability to change things," Leahy said. "He gets an hour and a half, maybe two hours with the chairman of Korean Air, and he can reach across the table and have a handshake with the guy. That's damn near impossible for me to recover from."

Dogged competitor

Customers say Leahy's sales style falls somewhere between a well-prepared debating champion and a snarling pit bull. Though he speaks with a slight New York accent, he has cultivated a certain European elan, favoring well-tailored suits and shirts with French cuffs.

His first triumph in the U.S. market was selling 100 narrow-body A320s to Northwest Airlines. Steven Rothmeier, the airline's chairman at the time, remembers being enthralled by Leahy's presentations, which seemed to anticipate all of his questions and supply well-thought-out answers.

"He would quickly figure out what the real issues were for us and address them," Rothmeier said. "With Boeing, you always got the feeling that all they had to do was show up."

The pit-bull side of Leahy, however, can frequently rub people the wrong way. One former American Airlines executive remembers a time during an Airbus ski trip at Utah's Deer Valley when, at dinner with their wives, Leahy wouldn't let up on the sales pitch.

"Just when you're feeling like relaxing and enjoying the wine," he said, "John's still hammering away about his latest product and why we should buy it."

Says a former sales colleague: "I've often joked that sometimes people bought airplanes from him just to get him out of the room. It's almost like he's got the devil on his tail or something."

Leahy grew up in Queens, the son of an accountant, and worked his way through business school at Syracuse University by flying a cargo plane on the night shift to Chicago. He sold propeller planes for Piper Aircraft before joining a small group of aggressive Young Turks hired by former U.S. Transportation Secretary and Airbus North America Chairman Alan Boyd.

Leahy quickly rose to the top of the U.S. operation and continued his drive for market share when he was promoted to global sales chief in 1994. At the time Airbus commanded a small slice of the world's order book, and much of the organization thought 30 percent was a worthy goal. Leahy, however, immediately began telling the media that Airbus planned to have 50 percent of the market by 2000.

His reasoning was clear. Because building airplanes requires such heavy fixed costs, a competitor with a dominant share of the market like Boeing had much more volume to spread across those costs. That meant it would make more money per airplane, creating a vicious cycle that would eventually cripple a smaller rival.

If Airbus wanted to compete long term, simple math said it had to have at least half of the market. And that meant it had to go all out to grab market share from its competitors.

Leahy's game plan had several key dimensions. First of all, he tore down the walls in the marketing department and created specialty teams to chase specific customers. He had those teams analyze lost deals to figure out where a campaign had gone wrong and how to improve the effort in the future.

He also kept the lines of decision-making short and gave his salespeople lots of room to cut deals.

Nick Tomasetti, an aerospace industry veteran who replaced Leahy as head of the North American organization, remembers a time when Leahy authorized a design change in a freighter model Airbus was trying to sell to United Parcel Service Inc. The change meant the airplane could hold more cargo but also would force the Airbus production department to find a way to absorb the cost.

Leahy zeroed in on markets Boeing didn't take seriously. He convinced Airbus to cut big deals with leasing companies like ILFC. Boeing had long kept lessors at a distance. It viewed them as quasi-competitors, since every leased airplane meant one less jet an airline would buy from Boeing. But Leahy was the first to see leasing companies as crucial marketing partners.

Airbus also pushed ahead with plans to build its new A380, a massive, double-decked airplane that promises to end the lucrative monopoly Boeing has enjoyed for decades with its iconic, hump-backed 747. And at the other end of the market, Leahy made an aggressive push to win over the new breed of low-cost carriers, led by JetBlue Airways, that have taken the industry by storm.

Underdog mentality

Bright, the former Boeing sales chief, recalls a time last year when he thought he had a deal won to sell 737s to Virgin Atlantic Airways' low-cost U.S. entrant, Virgin USA.

Then he talked to Virgin Chairman Richard Branson, who explained he had been called to Toulouse with Queen Elizabeth on an official visit. While there, Leahy and Airbus CEO Noel Forgeard had tossed him an offer for A320s that swung the deal their way.

"Sometimes business is just luck, Toby," Bright remembers Branson telling him. "If I hadn't gone down there, you would probably still have the deal. Blame it on the queen."

As the recent sales losses attest, however, Leahy and Airbus failed to guard their flank when they made their charge past Boeing.

When Airbus launched its A330 in the late 1990s, the new plane rendered Boeing's 767 obsolete. The A330 took more than three-quarters of the midsize wide-body market and proved a major win for the Europeans. But last year, when Boeing rolled out plans for its highly efficient 787, Airbus pooh-poohed the new plane.

"When you've got 80 percent of a given market, " Leahy said, "you aren't spending a lot of time thinking about how to improve that position."

By fall, as Boeing began to generate real interest in its new plane, Airbus had to scramble to retrofit its A330 with new composite wings and high-thrust engines to create the A350. Now it has fallen behind in a key market, and Leahy is scrambling to get his board to spend $5.3 billion to build it, even as the company runs over budget on the $12 billion effort to get its giant A380 in the air this year.

Leahy insists he works better when he's behind, and he's convinced the lost sales will give Airbus a renewed sense of urgency. He's battled Boeing before, and he's confident he can do it again.

"I will have 100 A350 orders by the end of the year," Leahy said. "If I don't, I'll look pretty silly. But I'm willing to take that risk because I think we can pull it off. The underdog always has an advantage."